Financing terms and conditions

Financing terms and conditions

The Arrangement places limitations on the financing terms and conditions of officially supported export credits. These include restrictions on the applicable Maximum Repayment Term, the Minimum Interest Rates and the Minimum Premium Rates to be charged for officially supported export credits. Specific terms for the Financing Terms and Conditions for the Aircraft Sector Understanding are also available.

Maximum Repayment Terms

Under the disciplines of the Arrangement, Maximum Repayment Terms for officially supported export credits are established according to the sector of the project and by the destination country of the project: Category I countries are High Income OECD countries; all other countries are Category II).

Minimum Interest Rates

The Arrangement stipulates that the Participants shall apply minimum interest rates when providing official financing support for fixed-rate loans: these rates are known as Commercial Interest Reference Rates (CIRRs). There are no minimum interest rate requirements for floating rates.

Minimum Premium Rates

The Arrangement stipulates that no less than the applicable Minimum Premium Rate (MPR) shall be charged to account for the credit risk when providing an officially supported export credit. Premium is charged in addition to CIRRs, as it is meant to cover the risk of non-repayment of the export credits. The Premium rates depend on the level of risk, which includes the country risk (see the page on country risk classification), time at risk and the political and commercial risk covered.

MPR for Cat 1-7 countries

The minimum premium rules to be applied have evolved significantly over time. The first agreement on premium for export credits (the Knaepen Package) was concluded in June 1997 and incorporated in the Arrangement in December 1997. In 2004, these rules were modified and adapted to reflect better the different export credit products and systems (see TD/PG(2004)10/FINAL). In 2011, the Participants agreed to expand and revise the premium rules (see TAD/PG(2010)10).

The prevailing applicable MPR for countries rated from category 1 to 7 (see country risk classification) are derived using a complex formula provided in Annex IX of the Arrangement.

Converting Up-front MPR into margins (Premium Discount Rates “PDR”): The PDRs are to be used to convert MPRs for country category 1-7 which are computed as up-front premium into spreads (these PDRs may also be used to ensure that a spread is at least as high as the required MPR).

MPR for Market Benchmark countries

Specific rules apply for credit risk premium to be charged in countries that are not classified and where private market financing is generally available (i.e. market benchmark countries). These rules were agreed to in November 2016 (they were incorporated in the Arrangement and implemented in February 2017).

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